GRIPS 政策研究センター Policy Research Center


2014/4/1 ~ 2016/3/31

Bringing the Central Bank into the Study of Currency Internationalization


The outbreak of the global financial crisis of 2008-2009 reignited vibrant debate over the future of the global monetary system. One particularly important issue is the question of whether the Chinese renminbi will evolve into a consequential international currency, competing with or even replacing the US dollar as the dominant international currency. The answer to that question ultimately relies on understanding which factors affect currency internationalization. Economists have long addressed this issue by presenting a list of determinants of currency internationalization. Meanwhile, political economy research on the subject has been growing since the crisis, although it is still at an early stage.

However, the literature—including both economics and political economy—on currency internationalization neglects the role of the central bank in the process of currency internationalization. This is a crucial problem, given that the central bank is one of the core stakeholders in currency internationalization in its role as the issuer of currency. Moreover, the role of the central bank regarding currency internationalization is rather unclear inasmuch as theory and actual practice are at odds. From a theoretical viewpoint, one of the major costs of currency internationalization for the issuing state is constraints on domestic monetary policy, which implies that the central bank is likely to be opposed to or reluctant about the internationalization of its currency. In contrast to such a theoretical expectation, however, history reveals quite the opposite: the People’s Bank of China (China’s central bank) has been one of the most enthusiastic advocates for renminbi internationalization. In addition, the Federal Reserve (the US central bank) played crucial roles in dollar internationalization during the early 20th century when the dollar began to emerge as an international currency, and today the Fed remains very positive about the role of the dollar as the dominant international currency.

In this context, this research aims to provide an innovative political economy analysis of the preference for or against implementing currency internationalization and the subsequent role of the central bank therein, thus bringing the central bank into the study of currency internationalization. The major study cases of this research will be the People’s Bank of China and the Federal Reserve.